Host Hotels (HST) Gears Up for Q3 Earnings: What to Expect?

Host Hotels & Resorts, Inc. HST is slated to report third-quarter 2019 results after market close on Nov 5. The company’s revenues and funds from operations (FFO) per share are expected to display year-over-year (y/y) declines.

In the last reported quarter, this Bethesda, MD-based lodging real estate investment trust (REIT) reported a negative surprise of around 1.85% with respect to FFO per share. Results reflected a decline in occupancy and revenues.

The company delivered an average positive surprise of 3.85%, in the last four quarters, surpassing estimates thrice and missing in the other occasion. The graph below depicts this surprise history:

Host Hotels & Resorts, Inc. Price and EPS Surprise

Host Hotels & Resorts, Inc. Price and EPS Surprise

Host Hotels & Resorts, Inc. price-eps-surprise | Host Hotels & Resorts, Inc. Quote

Let’s see how things are shaping up for this announcement.

Factors to Consider

The U.S hotel industry’s results have been decelerating for the last three quarters. This resulted from deteriorating leisure demand, persistent high supply in key lodging markets, rising wage pressures, and higher property taxes. Further, amid prevailing global slowdown and uncertainty surrounding the ongoing trade deals, businesses have recently adopted a cautious stance. This has resulted in a decline in business-transient demand. The soft operating environment is expected to have impacted hotel REITs' performance.

In fact, going by data published by STR, the U.S. hotel industry witnessed y/y contraction of 10 basis points (bps) in occupancy during third-quarter 2019. Although RevPAR inched up 0.7% year over year to $94.42, it was the lowest y/y percentage change since first-quarter 2010. Additionally, average daily rate (ADR) was modestly up 0.8% year over year to $133.25.

These weak fundamentals are expected to have affected Host Hotel’s performance in the quarter under review. In fact, the Zacks Consensus Estimate for third-quarter revenues is pegged at $1.3 billion, suggesting a y/y decline of 3.1%. Also, third-quarter revenues from rooms are pegged at $853 million, indicating a decline of 2.4% from the year-ago quarter’s tally of $874 million. Additionally, average occupancy rate is likely to have shrunk 100 bps, year over year, to 80%.

Nonetheless, the company has improved its portfolio quality by recycling capital out of low RevPAR assets to high RevPAR ones. The company has refocused its local presence through the accretive capital-recycling strategy, while reducing exposure to troubled assets. These efforts are expected to have helped the company thrive amid challenging lodging environment, as indicated by the encouraging y/y improvement in third-quarter ADR and RevPAR at the company’s properties.

In fact, the third-quarter ADR is expected to have increased 5% y/y to $225 million, while quarterly RevPAR will likely display y/y improvement of 1.7%.

However, there was no solid catalyst during the quarter. Hence, in a month’s time, the Zacks Consensus Estimate of FFO per share remained unrevised at 34 cents. Moreover, the figure indicates y/y decline of 8.1%.

Earnings Whispers

Our proven model doesn’t conclusively predict a positive surprise in terms of FFO per share for Host Hotels this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Host Hotels’ Earnings ESP is -2.82%.

Zacks Rank: The company currently carries a Zacks Rank of 3.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks That Warrant a Look

Summit Hotel Properties, Inc. INN, set to release quarterly numbers on Nov 5, has an Earnings ESP of +0.54% and carries a Zacks Rank of 3, currently.

Senior Housing Properties Trust SNH, slated to report July-September quarter results on Nov 7, has an Earnings ESP of +3.23% and currently holds a Zacks Rank of 2.

Douglas Emmett, Inc. DEI, scheduled to release earnings results on Nov 5, has an Earnings ESP of +4.85% and carries a Zacks Rank of 3, at present.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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